6Economic and Accounting Profit•Economic profit includes opportunity cost•Accounting profit does not•Profit you see in newspaper is accounting profit•Important – if economic profit is zero this means that you cannot make a greater return on your investment in some other industry

7Graphical depiction of profit and loss using areas•Profit = TR – TC•TR = P*Q, which is an area in the graph•TC: Since AC = TC/Q, AC*Q = TC•AC*Q = TC is also an area on the graph•Subtract TC area from TR area•This gives an area that represents profit (if positive) or loss (if negative)

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